Rental’s Taxable Entity

Renting out a second home on self-rental sites such as Airbnb can be very lucrative in high traffic vacation areas. I recently stayed at an Airbnb home in Palm Springs, California. As a guest it was a very enjoyable experience that I would highly recommend but as an accountant, it made me think about the rental’s taxable entity.

We were able to rent the house from Friday through Sunday. If this particular host allows stays for 2 nights they would possibly need to rent it out to 8 different groups to take deductions on Schedule E. In order to be considered a rental for tax purposes the rental is required to be rented for a total of 15 days, none of which can be rented to family members. If the house is rented for less than 15 days then the rental income becomes tax free and most of the rental expenses are nondeductible.

When we booked our stay they allowed a maximum number of 8 guests but the price went up per guest after 6. I know that with most cities there is a restriction on the total number of guests per rental but why charge more for 8 guests versus 6 guests? It made me wonder if this fee was due to the host’s preferences or was it due to other city regulations.

Occupancy Tax

After some research I discovered that in some cities, counties, states, or countries the taxing authority base their occupancy tax on a per person, per night basis. An occupancy tax is the tax paid for in cases of temporary lodging; for example at hotels, motels, inns, hostels and similar places. Occupancy tax is generally paid by the guest, but the obligation to forward the taxes to the government is usually the responsibility of the host. If self-rental sites, like Airbnb, are something you’re interested in, please speak to your tax professional for any other questions you may have before renting.

For more information please contact your LSL Advisor. If this article peaked your interest, you may also be interested in Airbnb Subject to Self-Employment Tax.

Written by: Lindsey Bocksberger, Tax Senior

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